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The Netflix of China Just Bought Vizio to Conquer the US

The LeEco and VIZIO Press Conference in Hollywood, where it was announced that LeEco had acquired VIZIO for $2 billion on July 26, 2016.

Jeff Lewis/AP for LeEco

When I sat down with Mark Li last spring, he didn't like it when I casually referred to his company, Letv, as the Netflix of China. "It's the other way around," he said. "Netflix is the Letv of the US." It was a fair point. The Chinese company launched its video streaming service three years before Netflix—and it had started producing its own original content well before the arrival of the seminal Netflix series House of Cards.

But this was about more than mere semantics. Letv would soon move into California, said Li's colleague JD Howard, a former exec with Chinese computer maker Lenovo. It was going to challenge Netflix on its own turf. "We're going to be building a big presence here," he said.

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Well, the company is making good on this pledge—and then some. Letv, now known as Leeco, just paid $2 billion for Vizio, a Southern California TV seller that controls about 20 percent of the US market. The Netflix of China now has the ability to push its online services and content into the US market on US televisions.

That's pretty much the plan the company laid out last spring. Even then, Leeco differed from Netflix in that it sold hardware devices where it could run its video streaming services. And not just TVs: Leeco's hardware also include set-top boxes, phones, even electric cars. It sold these devices only in China, but Li and Howard said the company planned to recreate the same hardware-meets-software business model here in the US. And now it has.

"Our strategy is to integrate our platform—including software and services—with devices," says Winston Cheng, Leeco's global head of corporate finance and development, when I speak to him by phone after the announcement of the Vizio deal. Cheng explains that Vizio has already started working with content providers to push Internet video on its TVs, as Leeco does. With the acquisition, he says, the aim is to help Vizio accelerate that process.

Finding a Way In

Leeco is just one of several Chinese Internet giants that are moving into the US. But typically, these companies take small steps, knowing they face a difficult path. Leeco, by contrast, has taken a big, decisive step.

But aggressiveness doesn't guarantee success. The online video market is already crowded with so many big US players, including Amazon, Apple, and Google, as well as Netflix. Meanwhile, other Chinese Internet companies have yet to really succeed in the US. Alibaba went public on Wall Street, but the Chinese Internet giant insists that, outside of investing in various US companies, it has no real intention of going after stateside markets. Baidu, the "Google of China," runs a research lab in Silicon Valley, but otherwise its approach is much the same. These companies are enormously successful in China, but tackling the US Internet market is daunting, in part because the market is so well developed, in part because of American attitudes towards Chinese companies.

The Netflix of China now has the ability to push its online services into the US market on US televisions.

That's why Leeco is making its move at least in part through a US company (though it also intends to sell its own phones in the US). Even then, it is unlikely to go straight for the widest possible swath of US customers. Li and Howard said last spring that the company would go after US Chinese speakers before expanding to others while producing original content in partnership with US companies. And Cheng says the company could go after consumers unwilling or unable to pay steep prices for gear from a company like Apple. Indeed, Vizio sells relatively inexpensive TVs with low margins at retailers like Best Buy and Costco.

Cheng is coy about Leeco's precise plans after the Vizio acquisition. But he does say that the company sees its stateside foothold not only as a way of distributing its content in the US but also as a way of bringing US content to China. And that makes a lot of sense, at least where competing with Netflix is concerned. Chinese government restrictions have made the country the gaping hole in Netflix's global strategy. Even without such restrictions, the Chinese seem to prefer Chinese services, just as Americans prefer American services. We won't see a US Internet giant buying a major Chinese TV maker anytime soon. But the reverse just happened. And it could mean a new kind of competition for the biggest American names on the Internet.